When a homeowner association is either in danger of losing their insurance coverage or their insurance coverage is canceled, Lloyds of London is always a point of discussion. Lloyds is often referred to as the insurance company of last resort when you cannot obtain coverage in the primary insurance market. So what is Lloyds of London?
First and possibly most surprisingly, Lloyds is not an insurance company at all. Lloyds is an insurance consortium of insurance company members. The Lloyds insurance consortium was originally created in 1774, but can trace it’s origin back to 1689 to Lloyd’s Coffee House on Tower Street in London. Lloyd’s Coffee House was a meeting place for sailors, merchants, and ship owners. As a byproduct of this particular clientele, shipping news and shipping business deals were struck, including insurance. Lloyds of London thus evolved from merchants and ship owners wanting insurance coverage for the high risks of high seas shipping.
Being the oldest active insurance marketplace in the world, Lloyds is unusual in structure and practices as compared to all other insurance providers. Lloyds does not actually underwrite insurance policies, this is left to the Lloyds consortium members. Instead, Lloyds operates as a market regulator, establishing the structure under which consortium members function and by also offering administrative services to consortium members.
In the United States, with all the various individual state insurance laws, Lloyds of London operates by utilizing Coverholders. Coverholders allow Lloyd’s syndicates to operate in a county or individual state as if they were a local insurer. This is accomplished by consortium members giving their underwriting authority to coverholders. A coverholder will usually issue the insurance policy and handle other administrative duties in the particular local.
The policies written by Lloyds are high risk property and causality insurance. As the term “high risk” implies, these policies are deemed high risk and thus high insurance premiums are charged. Generally speaking, when a homeowner association’s insurance policy is canceled by a primary insurance market carrier, annual premiums can more than triple. If the exorbitant premiums are not distressing enough, Lloyd’s policies will generally have deductibles ranging from $10,000 to $50,000. Now if it seems that it cannot get much worse than the homeowner association’s premiums tripling and an astronomical deductible to deal with, these polices will have claim exclusion provisions. For example, items that may have been the cause of the original insurance policy being canceled, such as sewer line backups, may be excluded from coverage. Meaning no matter how severe the claim, if it occurs, there would be no coverage. Many times, Lloyd’s policies could basically just provide fire coverage. Unfortunately, in situations where primary market insurance has been canceled, Lloyds of London maybe the only option for coverage. WDPM
Copyright – William Douglas Management, Inc. 2016